Why does the Central Bank hold Investment Assets?

Pre-Euro Introduction:

Prior to the introduction of the euro, the Central Bank traditionally held reserves mainly to defend the currency against speculators

For example, if there was a lot of selling of the Irish punt in the market, such that its value relative to other currencies dropped, the Central Bank would use its foreign currency reserves to buy punt, and help preserve the punt’s value

The Central Bank also held reserves to provide income for the Central Bank to maintain its independence

Post-Euro Introduction:

In the single currency era, the role of reserves has changed

The ECB now holds a foreign currency portfolio of about €68bn in size, to which we contributed a portion (circa 2%) upon the establishment of EMU

This portfolio is managed across the euro area, with Ireland’s portion managed by FMD

This is available to the Eurosystem should the need arise to intervene in the foreign exchange market.